After six years of failed efforts by the IRS, Justice Department and lawmakers, new legislation is expected to prevent the worst abuses of a tax-avoidance scheme that has cost the U.S. Treasury billions of dollars. Tucked into the massive, $1.7 trillion government spending bill signed into law by President Joe Biden on Dec. 29, a provision in the law seems poised to accomplish what thousands of audits, threats of hefty penalties and criminal prosecutions could not: shutting down a booming business in "syndicated conservation easements," which exploit a charitable tax break that Congress established to preserve open land.
Under standard conservation easements, landowners give up development rights for their acreage, often an appealing, bucolic space. In return, they receive a charitable deduction equal to the property's development value, and the public benefits by the preservation of the land, which in some cases is made available as a park.
But as ProPublica first described in 2017, aggressive promoters built a lucrative industry through "syndicated" deals. These promoters snatched up idle land (a long-vacant golf course near a trailer park, in one example examined by ProPublica) and hired an appraiser willing to claim that it had huge, previously unrecognized development value — perhaps for luxury vacation homes or a solar farm — which they contended made it worth many times its purchase price. The promoters then sold stakes in a massive conservation easement deduction to rich investors, who made a quick profit by claiming charitable write-offs that were four to six times their investment. The promoters reaped millions in fees.
The new measure will limit taxpayers' deduction to two and a half times their investment. That will effectively eliminate the profits that drive syndicated deals while allowing traditional conservation easements to continue. "I don't know how the industry moves forward after the new law," said Sean Akins, an attorney with Covington & Burling who represents multiple syndication promoters.
The path to the new law was lengthy and winding. For years, syndicated easements seemed impervious to attempts to rein them in. Since late 2016, the IRS has attempted to stymie the deals, branding them as "abusive" and among "the worst of the worst tax scams." The agency has challenged $21 billion in deductions claimed by 28,000 syndicated-easement investors, pursued scores of tax court cases and collaborated with the Justice Department in targeting top promoters with criminal charges and civil lawsuits.
Prominent lawmakers from both parties weighed in against the abuse and, starting in 2017, introduced legislation, called the Charitable Conservation Easement Program Integrity Act, to halt the practice. According to estimates by Congress' Joint Committee on Taxation, applying these limits to deals struck since December 2016, when the IRS first branded the practice improper, would generate an additional $12.5 billion for the U.S. Treasury through 2031.
The syndicators fought back so furiously and so effectively over multiple years that ProPublica published not one, but two stories describing how bulletproof the industry seemed. The promoters and their investors were undaunted by IRS threats. Syndication partnerships were so profitable that they set aside special "audit reserves" of as much as $1 million to do battle with the agency in tax court. Syndication firms and their newly formed Washington trade group, called the Partnership for Conservation, or P4C, spent more than $11 million, by ProPublica's calculations, on lobbyists to protect their business before Congress. At one point, they went on the attack, seeking to strip the IRS of funds used to enforce the December 2016 notice that flagged profit-making syndicated deals as abusive and required participants to file forms reporting their involvement to the IRS.
The agency's efforts did little to slow the volume of syndicated deals, according to congressional testimony by then-IRS Commissioner Charles Rettig in May 2022. He sounded a bit desperate when he told lawmakers: "We need congressional help."
As Sen. Ron Wyden, D-Ore., chair of the Senate Finance Committee, told ProPublica last June, "There is a tax shelter gold mine here, and they're fighting very hard to protect it." He added, "This is a textbook case of the power of lobbyists."
By that point, the legislation targeting syndicated deals had been introduced, in one legislative chamber or another, eight times. A late-2021 strategy to include the syndication-killer language in Biden's Build Back Better bill had unraveled at the hands of Arizona Sen. Kyrsten Sinema, then a Democrat, who demanded that it be stripped out as a condition of her critical vote to win passage of the larger measure. (Sinema did not respond to ProPublica's request for comment at the time.)
The tide finally turned last summer — without attracting much notice at the time. During a June 22 Senate Finance Committee markup on retirement legislation, Sen. Steve Daines, R-Mont., a longtime sponsor of the Integrity Act, identified the projected windfall from a clampdown on syndicated easements as a way to pay for a popular proposal enhancing benefits for disabled police, firefighters, paramedics and EMTs. That bipartisan legislation, months later, got added to the massive, must-pass government funding bill, where no single lawmaker had the power to strip it out.
A big concession sealed support for the deal: Daines and other backers agreed not to apply the law to transactions that date back to when the IRS flagged syndicated easements as abusive in 2016 (though the IRS can still pursue cases from back then). Instead the new limits apply only to transactions that occur after the law's enactment. Along with a much smaller change exempting the measure from applying to historic buildings, this reduced the projected Treasury windfall to about $6.4 billion.
As the measure neared final passage in late December, Daines issued a statement: "It's about time — for too long bad actors have abused the conservation easement program and ripped off the American people, but this fraud will now come to an end. I'm glad to have worked with my colleagues across the aisle to stop scam artists, promote true conservation, and save taxpayers billions of dollars."
In an email to ProPublica, Rettig, whose term as IRS commissioner expired in November, called the new legislation "critical to the ongoing efforts of the IRS to stem the tide of abusive syndicated conservation easements." He said the measure, combined with $80 billion in new funding for the resource-starved agency, "will hopefully allow the IRS compliance and taxpayer education efforts to catch up on abusive syndicated conservation easement transactions as well as other similarly important service and compliance functions."
The IRS, in a separate statement to ProPublica, said "we are working to implement the recent legislation aimed at some of the most egregious syndication conservation easement transactions" as part of the agency's "commitment and efforts to combat abusive conservation easement transactions and all other abusive transactions."
P4C President Robert Ramsay, who has said the profit motive produces "tremendous opportunities" for conservation, attributed the measure's passage to the IRS' "ability to win a war of attrition." Ramsay told ProPublica that the new limits will have "a broad chilling effect" on all land conservation, even though it targets only syndicated deals. He also said its "broad brush" provisions would do nothing to stop inflated easement deductions by wealthy individuals and family partnerships. Ramsay added that he expects the measure to prompt "a number" of syndication promoters to exit the business entirely.
Efforts to shut down the syndication business had been pushed by the Land Trust Alliance, a Washington trade association whose 950 members administer traditional conservation easements. Fearful that exploitation of the charitable tax break by "brazen" profiteers could jeopardize the conservation deduction altogether, the group had prodded the IRS to undertake its crackdown and spent more than $2.5 million on lobbyists since 2017. "We kept this about ending the abuse, rather than discard the incentive," said Andrew Bowman, the organization's CEO. "We were relentless in trying to defend the integrity of a very important tax incentive."
Bowman marveled that none of the IRS' traditional measures to combat abusive tax transactions had worked. "All that just wasn't stopping it," he told ProPublica. "Congress could see it had to act. No one else was going to be able to fix this problem. The incentive to do the deals is now gone." He praised Daines for masterminding the strategy to pass the legislation, calling him "a true hero for private conservation." (He also said ProPublica's coverage "put out there for the public how egregious this abuse was.") Bowman added: "It's a great victory for conservation. It took longer than it should have, but we're certainly thrilled with the outcome."
